Shares of ITC extended rally for the fourth consecutive session on Thursday, with the share price of the cigarette-to-hotel conglomerate surging over 6% to touch a new all-time high of ₹384.4 on the BSE. The FMCG major scaled a fresh record high even after the government raised duty on cigarettes by 16%, which will make smoking more expensive. The mega-cap heavyweight got a lift as investors remained optimistic about the company’s third quarter earnings, which is slated to be released on February 3.
In Budget 2023, Finance Minister Nirmala Sitharaman on Wednesday announced a 16% rise in National Calamity Contingent Duty (NCCD) on cigarettes, which is negative for tobacco manufacturer such as ITC, Godfrey Phillips India, Golden Tobacco, NTC Industries, and others. Cigarettes will now get costlier as the excise duty has been raised to ₹510 for every 1,000 cigarette sticks from ₹440 for entry-level filter cigarettes up to 70 mm long. For mid-range cigarettes having lengths of over 70 mm but less than 75 mm, the duty has been hiked to ₹630 per 1,000 cigarette sticks from ₹545, while ₹850 from ₹735 for premium range cigarettes.
Despite the rise in duty, shares of ITC, the country’s biggest cigarette maker, gained as much as 6.3% to ₹384.4 during the session so far. The stock opened a tad lower at ₹360.75 against the previous closing price of ₹361.45 but soon rebounded strongly on the back of strong volume trade. In the first two hours of trade so far, as many as 16 lakh shares changed hands over the counter on the BSE against the two-week average volume of 6.95 lakh stocks. The market capitalisation stood at ₹4.73 lakh crore at the time of reporting. In contrast, the BSE Sensex was trading 106 points higher at 59,814 levels, led by FMCG and IT stocks.
ITC share price has risen 86% against its 52-week low of ₹207 touched on February 24, 2022, while it has gained 64% in a year. The Sensex heavyweight has surged 23% in the past six months and 14.7% in a month.
The recent rally in ITC shares can be attributed to strong quarterly earnings and positive recommendations by brokerages. Domestic brokerage Nirmal Bang expects the FMCG major to report a net profit of ₹4,773 crore, up 14.8% year-on-year (up 6.9% quarter-on-quarter) in the third quarter ended December 31, 2022. Net sales are projected to grow by 5.1% YoY and 3.3% QoQ to ₹16,669.2 crore. Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) are likely to jump 17.8% YoY and 2.5% QoQ to ₹6,009.3 crore in Q3 FY23.
For the July-September quarter of the current fiscal, ITC reported a 24% year-on-year growth in its consolidated net profit at ₹4,619.77 crore on the back of strong demand for its cigarettes and snacks. The cigarette-to-hotel conglomerate saw its revenue from operations jumping by 25% to ₹18,608 crore, from ₹14,844 crore in the same quarter last year.
Segment wise, revenue from cigarettes climbed 23.3% YoY to ₹6,953.80 crore, which contributed to more than 80% of its net profit and about 45% of its revenue. The revenue from the non-cigarette fast-moving consumer goods (FMCG) business grew 21% to ₹4,885 crore during the quarter under review. Among others, the hotel business’ revenue surged 82% YoY to ₹536 crore, while the agricultural business, the third major contributor to revenue, posted a growth of 44% to ₹3,997 crore.
ITC is the biggest cigarette maker in India with around 78% of market share in cigarettes and presence in staples, biscuits, noodles, snacks, chocolate, dairy products & personal care products. The rise in taxation on cigarettes is expected to impact volumes, going forward. However, the company has been gaining market share in cigarettes from last one year through new premium products and aggressive trade promotions.